A nonprofit drugmaker steps into the fray

Generic erythromycin, an antibiotic, saw price hikes every year from 2010 to 2017, ultimately ending up roughly 50 times more expensive than it started. It's not alone.

The market-based solution to this problem would be for a new company to start manufacturing those drugs. Often, however, there's a market failure, and the drugs remain hard to find or exorbitantly expensive for years.

At any given time, roughly 200 drugs fulfill four criteria:

They're available in generic form.

Like erythromycin, they're on the World Health Organization's list of essential medicines.

Their price has increased by more than 50%, in a way underlying market conditions can't justify.

They have suffered shortages that have harmed patients.

Enter Civica Rx, a nonprofit that intends to solve the problem by not making any money at all.

Civica is a consortium of seven hospital groups and three philanthropies. They've each already donated $1 million to the nonprofit, and have pledged to make at least $9 million more in loans, if necessary. That's total funding of $100 million.

Its hospital members can enter into a multi-year binding contract to buy large quantities of any given drug. That gives Civica, as a drug manufacturer, a lot of certainty when it comes to future demand.

Civica then contracts with its own vendors, locking in drug supplies for many years.

"Most generic manufacturers will never even run into us," says Dan Liljenquist, Civica's chairman.

Civica is not a danger to the generic drug industry; it will operate only as a manufacturer of last resort in the rare cases where that industry has experienced market failure.